CCRT- SMTP-Balance sheet analysis -2007

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By: dkinani (15 month(s) ago)

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Slide 1: 

Welcome to an interactive session on Balance Sheet Analysis

Slide 2: 

Definition Balance Sheet is a statement of Assets & Liabilities as on a Particular date

Slide 3: 

Profit & loss Account is a Statement of income & expenditure for a particular year

Significance of Balance Sheet/Profit & Loss account : 

Significance of Balance Sheet/Profit & Loss account What is the financial position of a firm at a given point of time? How has the firm performed during a particular year?

Slide 5: 

Adverse Features Trend of Progress Abnormal Features Profitability/ Liquidity Inadequacy Need for analysis of Balance Sheet -Study of

Slide 6: 

Study of Trend of Progress Watch- Capital base- Networking Capital- Current ratio (CA/CL) Sales- Sales to GP/NP Net profit- consistency

Slide 7: 

Study of Inadequacy Compare Capital base or networth in relation to total outside liability Quantum of Net working Capital to total current assets

Study of abnormal features : 

Study of abnormal features Stock vis a vis sales turnover Debtors vis a vis sales turnover Creditors vis a vis purchases or consumption of materials Excessive Fixed assets in relation to requirement of business.

Slide 9: 

Short term sources of funds not used to buy long term assets Unit should maintain sufficient NWC. In the absence of NWC, unit should not make unnecessary investment outside business . Unit should not avail Bank finance against unpaid stock or overdue debtors Study of Financial discipline

Slide 10: 

Study of adverse features Huge presence of obsolete stock not used in manufacturing process Continuation of overdue debtors & other overdue receivables. Continuation of overdue borrowings and creditors Not providing for bad debts, depreciation, income tax & other statutory liabilities

Slide 11: 

Study of profitability Decreasing GP & NP Increasing cost of production Comparison of consumption of RM , stores & spares to cost of production

Slide 12: 

What to look for when given a Balance sheet & P& L account Identify your objectives Read Director’s report Then read Auditor’s Report along with notes Find out consistency in dividend declaration

Slide 13: 

Quantum of contingent liabilities Whether increase in long term loans matches with increase in long term assets. Adequacy of current assets vis a vis current liabilities Consistent improvement in Sales ,GP & NP Ensure absence of Window dressing

Slide 14: 

Ratios to be focussed Debt equity ratio DSCR Current ratio Fixed Asset coverage Ratio Profitability ratios IRR

Slide 15: 

Choosing a benchmark

Slide 16: 

Compare the ratios (return on assets, profit margin and asset turnover ratios) for the last few years Compare them with those of other firms in the same industry & then come to a conclusion

Slide 17: 

What to look for if you want to be a prudent investor ?

Criteria for investment : 

Criteria for investment Identify your investment objectives Assess your risk bearing capacity Ensure company’s shares have been traded earlier. Ensure growth potential for the industry/sector in which the Co is operating Consistent dividend declaration Constant improvement in company’s performance Status of market capitalisation

Slide 19: 

THANK YOU